Two majors events lined up for this week, the RBI’s first bi-monthly monetary policy for 2015-16 to be announced tomorrow and next, the government's unveiling of the industrial production data (IIP) for February 2015 on Friday, are likely to influence the trend of the stock markets, which have been rather volatile over the past few weeks. After dipping below the 8300 mark, the markets witnessed a swift recovery. However, concerns remain on many fronts. This in the backdrop of positives including the budget, the rate cut that followed and other announcements in and outside parliament which may indicate that the bull market which began around December 2013 is tiring. After recording an all time high post the budget at 9119 on March,4th, the Nifty retraced to touch a low at 8269 on March, 27th. It then reversed and has turned highly volatile and is hovering around the 8586 points level. Analysts attribute this behaviour to a correction which is to be followed by a phase of consolidation. Most assert that the underlying trend remains strongly bullish and the present volatility, not withstanding, equities continue to be the favourite for long term investing. Team ADC spoke to a number of market experts on their take on the present scenario and other market related issues. Their views...
With the markets fluctuating violently, what according to you is the reason for such volatility?
The equity market has generated a very handsome 26.7% return in FY15 on the back of 17.5% return in FY14. This was driven by positive sentiment attached with formation of a majority government at the centre, improvement in macro-economic conditions, decline in inflation resulting in reduction in interest rates, strong governance and improvement in growth outlook. The Markets now are trading at 20x FY15E and 17x FY16E earnings numbers, and are at above average valuations. However, earning growth for corporate will take time to recover and could remain subdued in the near term. The improved macroeconomic fundamentals provide the strength to the market, while the sluggish corporate results limit the upside. Hence, in the near term equity markets may consolidate and remain around current levels with sector and stock specific rotations leading to volatility in the market as can be seen currently.
CIO, Canara HSBC Oriental Bank of
Commerce Life Insurance Co.
The Nifty has been oscillating in a range of 500-600 points in the recent few sessions, mainly due to lack of any significant trigger to drive the market convincingly in either direction. But we believe that going forward the market has strong triggers, one of it being a likely interest rate cut by the RBI. Further, government reforms are likely to take the market to another level, but this would be from a medium to longer term perspective. We believe that any near term correction in the market should be taken as a good buying opportunity by investors.
Head of Research, Angel Broking
The markets have gained only in five sessions out of 21 in the month of March. Profit booking was witnessed across the sectors. The key driver of the markets in last one month was the union budget and the RBI monetary policy. The market participants booked profits in almost all outperforming sectors like Banking, IT, Auto and select Infra stocks as the financial year ending and lack of further short term triggers prompted a wait and watch approach. The India VIX declined steadily in March indicating that the current correction is a regular bull market pullback. In the last two months markets were driven by positive sentiment of lower rates and a strong message from the policy makers in the form of the union budget. Both delivered as expected and since markets are forward looking, profit booking was triggered with uneasiness about unseasonal rains and financial year ending.
AVP, Edelweiss Retai Capital Market Research.
Indian equity benchmarks have surged significantly over the past one year and are hovering near 8500 levels. Investors are more bullish on equity, given strong mid to long term growth prospect of Indian economy. As the market is trading near all-time high levels, it also makes investors more sensitive to the global and domestic economic developments. Investors are also paying heed to the US Fed move of interest rate hike which could impact the emerging economies like India. Furthermore,the next trigger for the market will be the March ending results which would be unveiled from the second week of April. Lower interest rates and lower commodity prices will reflect in better margins over the coming quarters. Further, capacity utilization across sectors is expected to rise as new capacities are not being added. Given the sentiments, geopolitical tensions across the globe and strong growth prospect of India, every correction in market will be an opportunity to pick stocks, but investors should keep valuations in mind.
Associate Director, Choice Broking
The markets have been on an upswing over the last couple of years specifically from August 2013 and that without any major price correction taking place; so it’s not a strange phenomena for the market to consolidate/correct by sideways/downwards and because of the fast run up, profit booking at 9000+ levels has led to this volatility. The international crude oil prices also have been bouncing around which has added fuel to the fire and geopolitical issues like Greece, Rate hike possibility in the USA has also played its part, not to mention the combined opposition playing its part to stymie the governments reform process. The market seems to have taken a breather so to speak after a scintillating move which is expected to continue once this correction exhausts itself.
CEO, Chart Pundit.
There are several factors that are on the minds of traders (investors can ignore many such factors) like the conflict in Yemen, Strong economic data from the US and its resultant impact on emerging markets, the untimely rains and its impact on crops leading to further inflationary trends and its possible impact on the RBI policy with respect to further reducing interest rates. Add to this the volatility in international prices of crude and its impact on the Rupee and the ability of the government to pass contentious legislation successfully. Many times the volatility is witnessed due to technical factors also, which seems to be also contributing to the see saw. Our markets have seen stocks surging, and soon we shall have the result season, where the expectations are that the results of individual companies may not keep pace with the prices already risen, hence that has added to selling pressure. Add to this the expiry of March contracts on the FNO segment. We also have to account for some positions being pared on account of the Financial year end when liquidity is generally tight and the focus is mainly on closing the books. Alternately, factors like expectations of a further rate cut and firming of prices for year end NAV’s try to tilt the scales on the other side.
Alok C. Churiwala,
MD, Churiwala Securities
Geopolitical tension between Yemen and Saudi Arabia, FOMC chairperson Yellen’s statement regarding the rate hike in US, RBI’s surprise rate cut, mix macro economic data releases across the countries etc were the main reasons which causes volatility.
Equity Research Analyst, Hem Securities
With the weather playing the spoil sport with current crops and danger of El Nino looming large, where do you see the markets six months from now?
The weather has been erratic and playing spoilsport off late. This could impact crop yields for the season. India currently has adequate stocks of wheat and rice, and global prices are also subdued. The concern may arise due to increase in prices of vegetables, fruits and pulses. The bigger impact though would be on rural and farm incomes, which would further impact consumption in the economy. Thus adverse weather conditions may impact GDP growth, inflation and market sentiment. The Reserve Bank may also wait for the onset of monsoon before further easing interest rates.
Currently, the inconsistent monsoons have negatively impacted crops. However, the government has sufficient food grains in stock, mainly wheat and rice, which resultantly will not escalate inflation. Further, going by historical data, a weak monsoon may lead to higher vegetable prices for the next 2-3 months, but overall we see prices to be under control. Hence in our view, the RBI would likely go ahead with rate cuts, not being constrained by inflation, which would be positive for the markets. Going ahead, in the eventuality of an El Nino, the government still has enough food grains in stock to tackle the situation.
Weather has been an important short term driver in terms of setting up of food inflation and overall inflation expectations.
The unseasonal heavy rainfall in recent weeks is likely to impact the Rabi harvest which in turn will put pressure on rural demand in the near term. The prices of commodities like Wheat, Gram, Pea, Mustard, Linseed, Barley are likely to increase in the coming future, which would raise food prices. Referring to El Niño, it is a weather phenomenon which weakens the trade winds and causes an abnormal, prolonged warming of the sea surface temperatures. As a result, it has a huge impact on the rainfall patterns across the world and also on India during the monsoon months (July – September). El Niño is currently in the neutral phase and has arrived much later than predicted. El Niño is not expected to have a big impact on Indian monsoon season because of its unusual timing.
Agreed that weather is playing spoil sport but things might not get actually as bad as they sound as the El Nino fear was also larger than life in the last year also but rainfall did play catch up and the situation had blown over. Currently a lot of the positives like rate cuts and the passing of the insurance bill haven’t yet been reflected in the market and these positives have been sold into.
Predicting markets is something like predicting the weather.., the kind of weather we have lately had has impacted crops and will lead to a situation where prices go up further. This inflationary impact could have a bearing of further rate cuts unless it is balanced by prices of crude falling. This is in the immediate short term, by second/third week of July we should know the monsoon situation clearly, and that will largely dictate the trend for the market thereon.
—Alok C. Churiwala
At what level do you see the markets by December 2015?
We expect equity markets to consolidate at current levels in the near term and generate returns in-line with earnings growth this year.
We have a Sensex target around 33,156.
By the end of 2015 we expect Nifty to rise to levels of 9800 to 10,000.
Well, with the given situation and sentiments, we are bullish on markets and expecting the Nifty to touch 5 digits soon i.e. we are expecting levels of 10000 plus in the next one year. As far as Sensex is concerned it can touch levels of 35000 and above.
I feel the market (read as Nifty) should be closer to 10,000 and maybe even more by December 2015.
If we get atleast two interest rate cuts by the RBI till December 2015 the markets will be in the range of 32000-33000 during the period Sept- Dec 2015.
—Alok C. Churiwala
We are bullish on markets with medium to long term view. We expect Nifty to hit 9200 level by December 2015.
Your Advise for small investors?
Small investors, should be disciplined and regular with their investments. They should have balanced and well diversified portfolios and not be deterred by short term under performance of the equity market. While the near-term outlook appears stretched, we believe that good double digit CAGR returns will be generated over the next 3-4 years, as corporate earnings growth comes back. In the meanwhile small investors should be disciplined and patient and invest money on a regular basis. This would help portfolio cost averaging in a volatile market, and generate good returns over the medium to long term.
Investors should invest in a systematic manner in the market and not be influenced by greed and fear as the market has inherent nature of being volatile. I suggest retail investors should invest with a longer term time horizon, ideally 2-3 years, which would likely give them favorable returns
Focus on high quality stock which have a proven track record and low volatility. Avoid high beta and stocks which have an overhang due to poor corporate governance.
I hope retail clients have started investing in the markets and if not, then this is the right time to start investments in the market for the time horizon of next two to three years. Investors should select the sector and the should go for stock specific entry. We believe one should invest in quality stocks and not penny stocks. Sooner or later quality stocks will give decent returns in the markets and sometimes if the stock does not move then its always advisable to exit that stock and buy something which is giving fast returns. Instead of sticking to a stock which is not giving return, it's better to exit in loss or near cost and enter into something which can multiply your investments. In a bull market we expect a return of 20 to 25% on annual basis. So go ahead and invest in the markets which will multiply your wealth atleast for next 2 to 3 years.
Its better late then never and small investors need to participate in the market as they could be missing out on a huge opportunity and if they have burnt their fingers the last time around, an SIP based mutual fund approach spread over a minimum of 5 years (longer the better) should give them decent if not good returns. As stock picking could be an issue, its better left to the professionals (mutual funds) while a mix of blue chip and midcap funds should even things out over the longer term.
For the small investors, the best bet is to keep investing small portions of money regularly either directly in select high quality blue chip stocks or go the Mutual Fund route. Either way they should not react adversely to the volatility and be aware that even hard core professionals find it difficult to time markets. It is finally the Rupee cost averaging that will work in their favour.
—Alok C. Churiwala
We suggest to stay invested with long term investment horizon on strong fundamental stocks.